Larry's VC View is the bi-weekly blog by photonics entrepreneur and budding venture capitalist Dr. Larry Marshall who shares his thoughts and reflections on the VC scene, as he makes the transition from serial entrepreneur and engineer, to Venture Capitalist. He hopes to share his experiences, lessons and mistakes with fellow entrepreneurs seeking venture funding.

Friday, August 28, 2009

I was recently confronted by someone who cited the “failure” of one of my past companies as evidence that I don’t know how to run a business, and it kind of shocked me, but I thought it might make a fun blog:

Years ago we built a company, took it public, and everyone made quite a bit of money, the VCs, the underwriters, the brokers, and even us founders ;-) It was an interesting time because Clinton was messing with health-care and markets were tough. Following the IPO which was in a hot cycle of the market, the stock went up by about 3x. the revenues grew fairly rapidly, and then the market stalled, and they flattened. Some new products were released, and growth began again; basically the stock bumped up and down for the next several years.

Firstly, I was shocked to have someone tell me that this company was a “failure” and that this negated any input I could give around business. After all, the company is still going, has substantial revenue, happy customers, and will probably come out of this recession stronger than most. But even if none of that was true, would that constitute failure? It has been through 2 CEOs since I left, the management team has largely turned over, and certainly the BoD has not a single original member. If you ask the VCs who funded it, they see a success, the bankers and underwriters, the initial shareholders. The current CEO and BoD think it’s a success. So what is success?

For an entrepreneur there should be no such word as failure. Failure constitutes not trying, giving up, running away – entrepreneurs don’t do that. When things get tough, hired guns head for the exit, founders and true entrepreneurs roll up their sleeves and find a way to turn dirt into gold ... their investors should take note of this and try to do the same, it would make the process a hell of a lot better for everyone.

Secondly, I wondered why anyone would suggest that “failure” negated experience – surely anyone who has tried to do anything recognizes that “failure” is the greatest teacher – which is of course why entrepreneurs don’t believe in failure – or at least why we define failure as not trying.

Now interestingly, the CEO who replaced me in that company might be also called a failure by my critic, because he was fired by the BoD a few years later when the company wasn’t doing so well. Interestingly, a few years after that, he was brought back in by the Bod to be CEO again, and is actually doing a lot better – the share price is on the rise, and I think he learned a lot from being canned, not the least of which was that he wasn’t responsible for carrying his founding team forever, and that it was OK to bring in new people to help run the company because founders rarely scale ... now there is a lesson.

To me he succeeded because he managed to run a public company (something I hate doing), deal with being termed a failure, and still come back when needed to help the company get back on track. Not to make the obvious comparison to Steve Jobs but sometimes it takes this kind of event to trigger success – although I think in both cases the BoDs were wrong and driven by investor mentality rather than operating. Even more interestingly, is that the BoD that fired him before are now completely replaced ;-)